(Bloomberg) – This has been a painful week for Chinese stock, bond and currency traders as growing fears about the effects of the Covid Zero national strategy drive markets to collapse.
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The Hang Seng China Enterprises index of the major continental companies listed in Hong Kong is among the worst performing benchmarks in the world this week. The yuan is on course for its steepest five-day decline in almost three years. High-yield dollar bonds target the longest period of weekly losses since March.
Attitudes toward Chinese assets have worsened as the Covid blockade slows economic growth and political stimulus does not meet investor expectations. Domestic stocks lost about $ 2.7 trillion in market value this year, prompting authorities to step up efforts to stem the decline.
“For a change of mood, we need to see something sincere from politicians, or a lot of extra liquidity, a big change in the situation in Shanghai, or a huge surprise that will inspire new hope in the market,” said Wang Yugang, fund manager at Beijing Ax Asset Management. Co.
The Hang Seng China Enterprises Index fell 5.6 percent this week, the biggest drop in more than a month. Other assets are also under pressure, with the land yuan on track for its biggest weekly loss since August 2019. Options traders are pricing due to additional currency weaknesses after it broke a key level of technical support on Wednesday for the first time since September.
“PBOC seeks to provide additional support to the economy and seems intent on attracting as many levers as possible, perhaps with the exception of lowering interest rates so far,” said Khoon Goh, head of Asian research at Australia & New Zealand Banking Group Ltd. . “Leaving the yuan to lose weight this week seems to be part of the overall ‘maintenance package’.”
The story continues
Meanwhile, dollar-dumped junk bonds fell for the second week in a row in the worst of mid-March. This offsets the initial rebound that the securities received from Beijing’s promises of support, as investors’ patience for more details is running out.
As a matter of wider concern, higher-rated developers such as Country Garden Holdings Co. posted some of the biggest declines this week. According to Jean-Louis Nakamura, Chief Investment Officer for Asia and the Pacific at Lombard Odier, any renewed recruitment can only be sustained if concrete and significant policy steps are taken quickly.
Seek support
Authorities are taking action to stop the decline. In a meeting with investors on Thursday, the securities regulator called on the country’s giant social security fund, banks and insurers to increase investment in equities.
This was followed by a series of articles in state media that predicted confidence in the economy and markets. The concerted effort underscores growing pressure on the authorities to build confidence in a closely monitored leadership expected to confirm China’s precedent for President Xi Jinping.
This is not the first time the government has called on institutional investors to increase their positions. A similar call was made less than two weeks ago after a request made in October 2019.
Without seeing an end to Covid’s tight restrictions, foreign investors unloaded 45 billion yuan ($ 7 billion) in shares in March, the biggest ebb in nearly two years as global funds cut their holdings of Chinese bonds with the most registered in this month.
Authorities have shown little concern about the withdrawals, with Fang Xinghai, vice chairman of China’s securities regulatory commission, saying Thursday that outflows would always return.
“Obviously, Beijing wants to stop bearish sentiment for both the economy and the stock market,” said Castor Pang, head of research at Core Pacific Yamaichi. “But the economy is like a giant ship and it takes time to turn around. Even if Beijing wants to talk about the market, it is difficult to change the way investors think.
Pension increase
Separately, China also published guidelines for the development of individual pensions on Thursday, which CICC analysts estimate a total of 1 trillion yuan in the long term. This can help stimulate additional flows in domestic stocks.
Authorities, meanwhile, are trying to resolve a dispute involving an audit of Chinese companies registered in the United States, a problem that weighs heavily. The securities regulator holds talks with the U.S. Public Company Accounting Board every two weeks and is “confident” of an audit deal, Fang of the regulatory board said Thursday.
The Hang Seng Tech index closed 0.3% after falling 3.6% earlier. The continental benchmark index CSI 300 ended the session up 0.4%, reversing a loss of 1.1%. The figure fell 4.2% this week to record its worst performance in five days since mid-March.
Still, defeat may be just what it takes to get investors back. Funds have been on the sidelines as they wait for the market to form a “double bottom”, a sign that it may be safe to build reverse positions.
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